Housing Demand in High-Return/High-Volatility Environments

We construct a life-cycle model that delivers realistic behavior for housing demand over the life cycle and examine how the model can be calibrated to match basic housing facts in the Chinese economy. We use data from the China Household Finance Survey (CHFS) 2011, 2013 and 2015 to construct life-cycle income profiles for different education groups and we calibrate the aggregate-consumption growth and house-price dynamics to match the data over the last 14 years (2003-2016) as reported by the National Bureau of Statistics of the P.R. China (NBS). We document the assumptions we need on preferences in order to match the observed housing demand. Given our calibrated economy, we then conduct a counter-factual analysis of the effect of slow-down in GDP growth on housing demand dynamics